Fixed that for you. The big banks have one thing going for them, they're big. That means they will have a wide network and a large service organization, but most feel no need to meaningfully compete for your business. You're going to use them because they're big. You're not going to get meaningful interest on your deposits at a big bank, because they don't need your deposits; bankrate shows me rates up to 4.75%, with banks I've heard of at 4.3%, Ally at 3.75%, my credit union at 2.5% (at least it's moving up, although the pace of increases is a lot slower than the decreases were :/), and Chase is at the national average of big banks: 0.02%. Certainly, 0.02% was understandable in the zero-rate environment, but I'm pretty sure it's been Chase's interest rate for the last 30 years (no data, just a hunch). Mortgage rates float in and out of competitiveness, especially if you jump through the hoops for a relationship discount; that's a good business where volume means profit at origination, and it's easy to sell the loans if they want to (that's part of why their underwriting is so cookie cutter; gotta make it easy to resell).
If you're in the SF Bay Area, you should really check out the local credit unions; some of them are pretty decent. Co-op/shared branch banking takes care of most of the access issues, but you might want to be aware that after hours telephone service is directed to a shared branch call center. My credit union holds and services the mortgages they originate, which means you don't have to deal with the servicing changed dance, and also they're able to do limited paperwork rate adjustments for a reasonable fee; much simpler than a refinance.
Like - you wanna spend 30K on a car and you have it in cash? take loan
you'll lose a some $$, but you'll be building your history.
It's a kind of arbitrage. If you're losing money overall, you're doing it wrong.
If we assume 8% returns and you only put 50% in the stock market and your loan costs 2% interest then your total benefit is only 4%. Putting all of it might get you 6% but you are now taking a significant amount of risk.
The issue is with very large banks. They have rigid underwriting deparments and poor CS, so if you approach them as a first-time buyer who isn't already leveraged to the hilt, they will make it a long and painful process. Mortgage agents are a prime target for AI replacements, because all they do is relay information between you and the underwriting departments that make the real decisions.
Other people have pointed out that when you take a loan for something you can afford, you can use the money you would have spent on other things in the meantime. (As long as you're confident that you'll keep making enough money to make your payments for the life of the loan.)
I'm not sure they're all that available or popular (they're highly dependent on your landlord having the correct paperwork and such) but the place I rented an apartment last year had this available and it did get reported
Personally I've never owned a credit card, I always pay with a debit card or cash. 20 years ago I refused to participate in the credit scoring system and still stand by it.
* you think you can make more money by investing your 30k and letting it grow and compound
* you are very prudent with your cash on hand and would rather have immediate access to liquid cash than save a little bit on interest which you pay down over the course of <term>
Some of the dynamics here are a bit different when market returns are not looking great/steady and money isn't cheap anymore.
Mortgages especially. Mortgage interest is tax deductible and makes it easier for high tax bracket individuals to outperform their loan by investing.
Since 2017, not really, due to tax law changes. Cap of $10k but that includes state taxes paid also.
Curious how the parent commenter had great credit with no seasoned lines of credit. It's one of the biggest factors in the score.
Months before seeking a mortgage loan, learn the score's equation and appease it.
and for those of you who refuse to talk to people when spending multiple hundreds of thousands or even millions of dollars, well... this is what you get to deal with.
the first step to not being a mark is understanding what you don't know, and working with people who do. you may still get marked to a certain degree, but at least you'll end up with a 2.x% interest rate like i did and no messages from the computer saying "you're too poor to buy this product, so run along now little man" when it clearly isn't true.
Especially if you have an unusual situation, brokers and personal bankers will know how to handle it.
I had 0 credit history in Canada (literally a completely blank printout), but wanted to buy a house now that I'm a PR. A personal banker was able to work with a copy of my US credit report (Canadian banks don't/can't pull this on their own), and proof of assets in the states. The first item on my Canadian credit report was cosigning a mortgage at prime rates.
Your credit wasn't near-perfect. You hadn't defaulted, but that's far from proving that you can manage your credit/money and make payments on time. A hobo who lived in the woods would also have never missed a payment.
I can relate, as I came in US from Europe. I arrived, opened a bank account in a big bank, I could only get a debit card, because I had not credit history. After few months I could get a credit card, but with a $500.00 limit! I needed a car, so I bought one cash.
When came the time to buy a home, I was asked to open more credit cards (one was not sufficient) and come back in a year or so later, to see how my score would improve.
Doing the same thing but this time with interest proves nothing the others don't. Borrowing history makes sense for businesses or people who with complicated cash-flows. But if you're stably gainfully employed the only things that matter is how you manage your external financial risks (which banks don't check for) and your ability to not over spend (which banks also don't check for).
Combine this with the your typical mortgage is overcollateralized means the magnitude of the loan is essentially meaningless.
Credit score is a moralizing system that hates the poor, so it's unsurprisingly embedded itself into American culture by three corporations that will never be held accountable (see: Equifax leak).
It's as American as the bald eagle. I'll stop now, my cynicism is showing. I just don't see a way to get to a place where we don't have the current trifecta of credit scoring corporations running our lives without a giant pile of money to start a competing credit bureau that makes and underwrites loans based on different computation of a person's score. Because a credit score was initially for rating people on their ability to pay back borrowed money. It's just been perverted since its inception into what we have now.
I agree. And slowly credit scores are starting to take rent into account.
> There's no difference at all for someone who works a dayjob.
But there is a difference. If you put your living expenses on a $500/mo credit card, you can have a $120k job and be eating ramen, living in a flophouse and spending the rest on drugfs or supporting people who cannot work. You cannot afford to service a mortgage. If you commonly service larger debts, then they don't have to worry about hidden things sapping all your funds.
Now they want to borrow $5k all of a sudden. Do you give it to them, just based on the above history?
That seems like such an obvious answer to me I want to ask if you intended to ask that of me or the person I was responding to.
As part of your loan application I can see your savings, income, employment history, and credit history. The payment on a 30-year fixed $5000 loan is $35/mo with current interest rates so that's the bar I need to hit.
* I see that your monthly cash flow is $200 which puts your loan payment at 17.5% of that.
* You're putting 20% down or $1250 which demonstrates to me that you're capable of saving 35x the loan payment.
* Your borrowing history is sparse but you pay of your $5 Spivak CC every month which is 20% of the loan payment right there.
* The loan is collateralized by an appreciating asset whose market value is $6000.
Yes. Obviously I'm giving the loan. To second order no one has a six figure credit history. Their first mortgage is likely to be the first and last loan of that magnitude in their lives.
It's also very easy to qualify for a $500k mortgage if you are clearing $250k a year. It makes me wonder how old you are, as "house prices are 2.6x a household income" is something that last existed in most places in the mid-1990s.
> To second order no one has a six figure credit history.
It is remarkably incorrect to treat it as a flat "no six-figure history means they are all are equivalent to a $500 history". Almost everyone has four-figure credit history based on credit cards, most people have five-figure credit history based on car loans and many people have six-figure student debts.
So, if I have been making $100K for 6 years at the same company, with no credit card (I only used debit in Europe because there was very little incentive for me to use credit card that I pay at the end of the month), even though I have never had a debt before, they would be willing to give me loan. While in US, with no credit card before, they could not.
The myth of US-style 'credit score' requiring a history of card use does persist here though, and I've known several people who have had to close one or more credit cards in order to get their mortgage approved.
Why exactly is this the conclusion, as opposed to suggesting the big banks need better evaluation of borrowers (whether thats with better metrics or humans in the loop)?
All the problems being brought up seem like they could happen to banks of any sizes...
It's nice to believe throwing more greedy people at a problem will fix it, and hey, sometimes it works.
First, centralization and consolidation increase the risk of fraud and corruption, and malign influence with regards to antitrust.
Second, almost no new banks are being chartered. What do you think typically happens when you go from Many -> Few (single digits) -> 1.
If something happens because they play the bailout game, the only real option is for nationalization.
Third, their sector mandate is to loan money to businesses that can use that money to turn a profit and feed the economy. They've stopped doing that outside a few corrupt friends(entities).
What you often don't hear about is what happens when they are the only game in town, they know your business is stressed, and they refuse to loan to you on arbitrary grounds (behind closed doors) knowing they can buy it up in bankruptcy for pennies on the dollar for a larger profit.
Like what Amazon did to the baby diaper companies.
https://arstechnica.com/tech-policy/2020/07/emails-detail-am...
These two are not the same thing.
Who would you rather lend a mortgage to?
- Group A, consisting of people who prudently pay debts early
- Group B, consisting of people who pay debts on their due date, and sometimes after
Let's say you lend $100B to each group A and group B. Historical data might show that in aggregate, group A has a default rate of 1% and group B 5% (there's 5% chance that a person from group B defaults on the loan).
Because of defaults (risk), you expect to lose $1B of principal on group A and $5B principal on group B. To break even, you need to charge group A interest that would at least offset their $1B loss, and charge group B interest to offset their $5B loss, hence group B's higher interest rate. One group is not automatically more profitable than the other.
Group B might incur more costs such as late fees, but this only works against their ability to make future payments.
I imagine that late fees increase the cost of repayments while debt interest increases the number of payments thus not hindering the ability to make future payments.
If it sounds ridiculous… imagine that every month, all the mutual funds you are invested in shut down and gave you your money back (with interest), and you had to choose from a whole new set. Some of you probably do this anyways, but most people prefer to make the choice once and then just let it grow.
Once you have established credit you will then be offer 0 APR credit cards for 12 to 48 months. With a zero APR credit card that has a balance say of 10,000 your monthly minimum payment is 1% of that so $100. $20,000 $200 a month ... once the APR promo ends transfer it to another card with zero APR.
Closing credits has hurt my credit so i keep them open and locked, as well establish email alerts on all of them for different scenarios to monitor them.
My credit today is good, but not perfect. I have trouble getting any new credit card. All for the same stated reason - too much available unused credit.
I'm sure my score would dive if I closed a bunch, just pointing out that having a bunch isn't always a good thing.
I can also see my credit scores as much as I want and ensure that I am using no more then 30% of my total accumulated credit limit. For example say I have 10 credit cards equally $100,000 combined then as long as don't have credit debt higher then $30,000 my credit remains good to very good to excellent. Your score will be negatively affected if your debt went to 31K and higher.
Another good thing is both apps alert me immediately when theres a change to my credit.
I pay about $50 a month for both, expensive yet well worth it especially if your looking to buy a house(s) and you overall really care about your financial health/score for present day or the future.
How many know they can rack up $10,000 in credit card debt and only pay $100 a month with a zero APR card? Im not sure many know this especially those in their 20s and maybe early 30s.
So whose your lender.. love to get a 2 percent interest rate on my next house. Moving into one soon and its much higher then that.
loan/credit application is mostly based on your income (you can maybe borrow up to 4.5-5x your gross income for a mortgage), how certain your income is, for example whether you have a temporary or permanent contract, and if there are no red flags in the last few years.
It also sounds to me that the difference between how we live here and the American system (I feel most people have loans for stuff in the 1–10k €/$ range in the US?) is a couple of months of living a bit more frugal, and the result is a lifetime of profit because you avoid all this interest everywhere.
Here it is common (and recommended by the government and banks) to have a 5k buffer. It could be my bubble but most people I know maintain that buffer. It pays for a new washing machine or even a new (crappy) car if needed.
Is it my view of the US based on Netflix that everyone has loans for the smallest of thing (like TVs) or is it really true?
There is much more access to credit in the US, most Americans use that credit a moderate amount to smooth cash flow for bumpy purchasing.
It is certainly the case that there are outliers who overuse credit, and many people who abhor credit like it sounds like you do.
One of the biggest differences between US borrowing and the rest of the world is that bankruptcy is very very easy to access, has very little stigma, and clears out most debts.
This makes the perceived costs of carrying a large debt load quite different.